The 5 Most Common Reasons for Being Denied Homeowners Insurance

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Buying a home is a complicated process, especially for first-time homebuyers. Yet, purchasing a property is one of the landmark moments in many peoples’ lives, and a home is often a family’s most valuable asset. Therefore, it’s incredibly important to make sure it has the proper insurance coverage. Some homes, however, can be more difficult to get homeowners insurance for than others. Being denied homeowners insurance is likely to scuttle the deal with a mortgage company.

There are several things that make obtaining homeowners insurance difficult, from where the home is located to who occupies it and what it is being used for. In addition, issues like flooding, wildfires, construction and renters can all factor into whether or not you can receive homeowners insurance coverage.

5 Common Reasons Insurance Companies Deny a House

This article will list five major factors that can make obtaining a policy difficult (or impossible) for certain houses. We’ll also talk about how to prevent or resolve these issues so you can have success with an insurance provider.

1. The House Is Structurally Unusual

The first major category and the hardest to resolve problems for home insurance coverage relate to homes that are structurally unusual. Structural issues involve questions of what type of home it is or what it is made out of. Alternative homes are becoming increasingly popular as buyers seek to find ways around high home prices.

However, homes made of unconventional materials or unusual construction fall under this category and create hurdles to getting a home insurance policy. It includes houses like barndominiums, or barndos, which are barns that someone converted into a residential home. Other unusual home construction includes cloth or canvas homes like yurts, A-frames, dome houses, and even mobile homes and trailers. Tiny homes can also fall under this category, making the hunt to find coverage more painstaking.

There are special policies that cover some of these types of homes. In other cases, you may have to find the right homeowners insurance company that will underwrite a policy because of the house’s unique status.

Older homes, properties under construction and homes with severe flaws that need fixing may also be difficult to insure. Typically, houses that are over 50 years old have to be updated by having rewiring, plumbing and other renovations done. Houses under construction need a special type of insurance called “course of construction” insurance. Sometimes this is called builder’s risk insurance.

Remember, the purpose of purchasing homeowners insurance is to mitigate risk. Married couples may find they also need joint life insurance as additional protection.

It is good to be aware of these issues and discuss them with a real estate agent. Or, better yet, talk to mortgage lenders or an insurance company before you make an offer. Ensuring you can obtain insurance is as important as having your financing in order.

2. The House Is in a Risky Location

It’s hard enough to find a home in 2024, but it’s important you find a home in the right place. Some homes may be located in an area that puts them at a particular type of risk, like hurricanes, flooding and forest fires. Houses in dense bush or forest areas may be deemed too high-risk as well. Houses in a flood zone can often only buy insurance if they purchase a separate flood policy.

Location, location, location has always been the driving mantra when looking for a home. However, that usually had to do with its proximity to work and schools, not so much about insurance requirements. There are other factors to think about in the house hunting process when it comes to a home’s location.

Finally, if your home is inaccessible or difficult to access, you may have trouble becoming insured. Houses that are difficult for emergency services, like police and fire, to get to may have higher premiums or be denied homeowners insurance.

Ensuring you select an area without some of these risk factors will make acquiring homeowners insurance far easier than elsewhere.

3. The House Is Being Used for a Business

Third, some buyers forget to consider usage issues when purchasing their homes. Some types of uses will not be covered under a homeowners insurance policy or may result in you being denied coverage.

Special uses include things like businesses, such as daycare, or even farming and ranching. If you are planning on incorporating an LLC and running a business out of your home, then it’s important to make sure that your homeowners’ policy permits this use. You certainly don’t want to find this out by getting denied insurance claims after the fact.

Working from home for another company is not likely to affect your ability to get a policy, especially if you are sitting at a computer most of the day and clients are not regularly coming to the house.

Agricultural business uses that occur on a property can also make you ineligible for standard homeowners insurance. Other home-based businesses, like caring for others in your home, require their own type of insurance. You must get home daycare insurance if you plan to run a daycare out of your home. A reputable insurance company can help you get the coverage you need.

4. The House (or Part of It) Will Be Rented

Another usage issue for the insurance company to consider is whether or not you will rent out your home. Renting is a great way to earn additional income, especially now that national rent prices are hitting all-time highs.

Rental issues encompass long-term renting as well as short-term renting, like listing your home on websites like Vrbo or Airbnb. It’s critical to double check your property insurance policy before you rent out your home — or even a bedroom — because it may end up voiding your coverage in many cases.

5. The House Has Maintenance Issues

The final set of issues is related to how you occupy your home. Most homeowners insurance policies require the home to be “owner-occupied.” This means that you have to live in your home. Periods of vacancy or living elsewhere, like in another home, can all potentially undermine your efforts to acquire or maintain homeowners insurance.

Check out The Penny Hoarder guide to finding the right homeowners insurance company for your needs.

Additionally, it is important to be mindful of how you live in your home. A frequent issue is a home that does not show “pride of ownership.” It means that the property is not being maintained. Hoarding is a common issue in this category, but so is failing to maintain your lawn and landscaping. or failing to repair property damage caused by natural disasters. These things represent a risk to insurers.

Other issues may relate to keeping the house in good repair. For example, if your property has broken windows, a collapsing porch or shabby paint, these factors may all contribute to whether or not you can acquire an insurance policy. Even if the lack of maintenance is a product of the previous homeowners, you could bear the consequences.

Analyze Your Situation and Find the Right Insurance Company

These are just the main considerations to keep in mind when trying to find a home that will be covered by homeowners insurance. Remember that if one company denies you homeowner insurance coverage, another might.

More often than not, avoiding homes that are unique, old, require heavy updating or are in dangerous areas can help make the process of finding homeowners insurance that much easier.

New York contributor Kiara Taylor specializes in financial literacy and financial technology subjects. She is a corporate financial analyst who also leads a group affiliated with the University of Cincinnati that teaches financial literacy to Black students and helps them secure employment and internships.